Death of spouse step up basis on CA rental prop..

[caroleccw33]

I need specific TT entries on how to remove old property  and enter new value of property (building  minus land); also do I remove related assets such as carpets, appliances, etc. already being depreciated, as I think they might included in new appraisal.  Do I start a whole new rental property, or do I work on the old?

[view2 · Accepted solution]

In California as a community property state, the surviving spouse can usually claim a new stepped-up basis on the home's entire market value,

At the rental summary screen click the asset  update radio button to the right then edit on the asset summary screen and proceed to 'Tell us about this rental asset". check the block  "This item was sold .retired , etc " [Enter the date of death of decedent./or alternate date if applicable]  proceed on out..... NO OTHER ENTRY.

Stops depreciation..

According to Internal Revenue Code Section 1014, the tax basis of inherited property is generally the fair market value on the date of death, or the alternate valuation date if that value was used on the decedent's estate tax return.

In Revenue Ruling 63-223, the IRS stated that depreciation determined for the period after a decedent's death shall be computed using the fair market value as of the date of death or the fair market value on the alternate valuation date, as applicable.[land value is separated.. land is not depreciated]

 The accumulated depreciation on the rental property prior to the decedent's death is irrelevant. Once the property has been inherited, the depreciation schedule would begin based on the new fair market value.

You then start from the beginning and add a new rental property with a new basis on date placed in service as applicable.

[caroleccw33]

Thank you, this clarified the structure entries, but what about the related 5 yr. assets-refrig., carpets. etc.?

[view2]

Your getting a stepped up basis for the FMV of the real property at DOD , that would include all property improvements etc, The  simple  approach is always the easiest. take the new stepped up FMV for the property and then when you have to replace the appliance add the new ones then as an asset.
Rental  Personal Property  used item generally go the opposite a step down basis.[FMV works both ways] . The FMV of used appliance is generally not worth the effort to enter , wait until they are replaced..

[peggyinconsho]

Thank you.  Now I understand.  I will just start over with a "clean slate".

[view2]

Your welcome.

[majnorv]

How do I get to the rental summary sheet

[captpaco70]

Spouse died Sept 5, 2022.... If I indicate the property is retired as of that date and then start a new rental property as of that date, do I only get 3 months worth of depreciation for 2022..... or do I get the old basis depreciation for January 1 through Sept 4?

Also does all this automatically carry over to California State tax return

[captpaco70]

Re last sentence of best answer...... would date asset placed in service be the date of death or the original date placed in service?

[DaveF1006]

To clarify, did both you and your spouse own the property together prior to his death?

@captpaco70 

[Mybesttaxservice]

Related to this question, can any one help me figure out 

>Is this case is applied to the property which is owned by both taxpayer and spouse before spouse's death?

FMV on death or alternate value in 6 months could count for new service and depreciation on that property

>So in the future if surviving spouse sold the property, what happened the recovered prior depreciation of the property before spouse's death? Irrelevant ?

Any shared information  would be appreciated 

[RobertB4444]

In a community property state when one spouse dies the other spouse gets a step-up in basis on 50% of the property owned.  So half the property gets that step up in basis, the other half continues along the track it was previously on.  The step-up in basis starts the clock over - all prior depreciation disappears.  For all intents and purposes, it is a new asset.  Crate new assets for each half of the property and depreciate them parallel to one another - one with the original start date and 50% of the original basis and 50% of the accumulated depreciation and the other brand new with a start date the same as the spouse's date of death (or 6 months later).

@Mybesttaxservice 

[Mybesttaxservice]

I appreciate you. 

[PJ-Seattle]

If following the procedure outlined by member view2 below, will the Schedule E for the year of death show 2 properties with the same address (one for the period up to death, and one for the period after death to which stepped up basis has been applied)?  Will this be a red flag for the IRS?

[brookfield1]

I am in similar situation as Captpaco70.  Spouse died on 9/2/22.  Rental property was owned by spouse and me as community property prior to spouse's death.

For 2022, should I do the following:

1.  From 1/1/22 - 9/1/22, I continue to report rental income and expenses as prior years, using the old property basis for depreciation.  I retire the property on 9/2/22.

2.  9/2/22 - 12/31/22, I start the same property as a new property, using the same address, with a stepped up basis as of 9/2/22.  New depreciation on the stepped up basis starts on 9/2/22.

3.  The property is not a sale, and there is no recapture of prior depreciation.

I own more than one rental property.  I would repeat the two steps (1 and 2) for each property.

Thank you for helping me out 🙂